Tax body blow in Addis weakens developing nations

Developing nations left behind as OECD countries continue to dominate the global tax agenda called for a UN body on intergovernmental tax to no avail.

Tax, more than ever before, is viewed as one of the most significant drivers of development finance. But Organisation for Economic Co-operation and Development (OECD) nations continue to dominate the global tax agenda in driving processes that seek to tighten up tax avoidance, and developing nations are being left behind.

This is why developing nations called strongly for a United Nations body on intergovernmental tax at the third International Conference on Financing for Development, which took place in mid-July in Addis Ababa. Such a body would be key to democratising global tax reform by facilitating a one-country, one-vote system to ensure the equal representation of all countries.

Unlike the existing UN Tax Committee, the intergovernmental body would also have the mandate and resources to reform international corporate taxation to prevent tax evasion and avoidance and harmful tax competition, and to ensure tax co-operation between governments.

In doing so, the tax body would empower African nations to take ownership of their own development agenda by improving their capacity to mobilise domestic funds, especially at a time when overseas development aid is drying up in Africa.

This is in sharp contrast to the current G20 and OECD efforts, and their base erosion and profit-shifting (Beps) project to reform international tax standards. The challenge of the Beps project is that it has not allowed developing countries to have an equal voice in the process.

At the conference, the South Africa delegation was led by Finance Minister Nhlanhla Nene. As the 2015 chairperson of the G77+China, Nene – and South Africa – is responsible for negotiating and speaking on behalf of two-thirds of the UN membership on key development issues at UN forums this year. And, in its closing statement in the plenary session at the conference, the South African delegation emphasised the need to upgrade the tax committee into a full intergovernmental body.

But, to the consternation of many, the final outcome document did not include the formation of such a body. On the contrary, it had only tweaks to the existing UN Tax Committee of Experts, which lacks political status and adequate resourcing. The final text did not signal a move away from dominance of the global tax agenda by the OECD at all.

For the developing world, the implications of illicit financial flows are enormous. A 2014 Global Financial Integrity report found that emerging economies lost $6.6-trillion in illicit financial flows between 2003 and 2012. The result is billions lost in potential tax revenues to governments.

South Africa was ranked as the country with the 12th highest average annual illicit financial flows over the decade from 2003-2012. These astounding numbers are affecting human development on the continent. Africa is home to six out of 10 of the world’s most unequal countries – South Africa, Lesotho, Namibia, Botswana, Zambia and the Central African Republic. Some estimates of Africa’s financing needs include $40- to $60-billion a year to finance the post-2015 development agenda.

The call for an intergovernmental tax body is therefore a call about justice and development; Africa will only be able to mobilise the resources it needs to tackle poverty and inequality through effective tax systems.

The UN Sustainable Development Goals summit in September and the Paris climate summit in December will provide two more opportunities for governments to act in the name of development and rebalance power in favour of the world’s poorest people.

As citizens from around the world, we must continue to challenge rigged rules that favour vested interests, and governments must listen to ensure that 2015 can still deliver the change we need for a more just and fair future for all.

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